A Conversation with Tom Strange, CEO of Solution Design Group, and Jason Tagler of Camden Partners
Many service companies struggle with how to build value that will attract either investors for growth or position their business for a sale. Whether they realize it, companies which add value beyond meeting staffing needs, whose clients rely on them for strategic insight, are uniquely positioned to rethink their business model.
Lots of Spreadsheets: Little Insight. Tom Strange went through such a process, and his newest company, Solution Design Group, reflects his pivotal thinking. Tom has built several companies focused on solving large IT infrastructure problems. These projects gave him, as Tom explains, an ability “to look at entire spectrum of a business.” What he realized across many engagements was that “every large infrastructure provider [faces the] challenge of tracking the money on the cost side.” The problem lay in the spreadsheet mentality of these large organizations. Costs were “tracked in silos, so the goal was to replace all those spreadsheets and to tie into other systems” with a cohesive solution that actually provided insight.
Follow the Money. That experience enabled Tom to think holistically about the disconnect between disparate systems and the cohesiveness needed to gain meaningful insight. If there was value (his first sale of a company) in consolidating the cost side of large projects, how about on the revenue side? While on the sidelines of a kid’s weekend soccer match, a fellow parent asked Tom what he did. When Tom explained that he was building what is now RevenueVision, he ended up with George Mason as his first client for this SaaS platform. The pressure on universities to generate revenue and manage costs is immense. What Tom quickly learned is that “they wanted to track revenue producing assets like the bookstore” to maximize every dollar.
Know thy Customer. Ironically it was Tom’s “inner engineer” that enabled him to see the problem through, as he describes it, “different eyes.” What Tom heard from George Mason was that there was “pressure on revenue sources, pressure to do better, and they didn't have the tools to do it.” The information available gave no insight on how to solve the problem. This is where Jason Tagler, a partner at Camden Partners, comes into the story. Jason is an active investor with Baltimore Angels and led the round for Tom’s new company. Being an angel investor is a bit of a busman’s holiday for Jason, given his role to find private equity opportunities with middle market companies for Camden Partners. For Jason, as he explains, Solution Design Group represented a “solutions oriented company that understands the pain and value proposition.” Jason continued, “solving the spreadsheet problem that matters to the enterprise, one that moves insight to the enterprise that's hidden in the spreadsheet and makes it auditable,” represents real growth potential and an attractive investment.
Pitfalls of Morphing. Both Tom and Jason cautioned that not every service company can become a product company. I asked both Tom and Jason to highlight the challenges a service driven organization faces in changing to a product driven one. Here are Tom’s thoughts:
- "Listen to your customers" – continuing, “while they may not know how to solve the problems they are having, they certainly understand what the problems are and how those problems impact their business”; “Don’t assume you know the answer before you've heard the entire problem”
- Once you’re ready to build the solution, know “there's a profound difference between writing code and developing a product” – to build a product requires a complex approach to design, development, testing, scaling, support and “anticipating what the user experience needs to be”
- “It takes much more time and effort and more resources than you can anticipate develop a product” – Tom describes it as a different development paradigm, moving from a “coding mentality” to a “business process analysis” and that takes time, talent and money
- “Our clients never paid for the development of our product” – By deciding to seek funding, Tom is avoiding the tug of war with clients over who owns the software; “make sure it's your original work and not what you were paid to develop, given work for hire challenges” – while there are ways to contract around the ownership issue, allowing one to essentially use customer revenue to fund development, it has to be done with an eye to whether investors and an ultimate purchaser of the business can get comfortable with who owns the intellectual property
- “You can’t be tentative about the decision [to become a product company], you have to take the leap, as it’s hard living in two worlds”
I became curious how Jason’s thinking extends from the realm of angel investing to that of private equity. He began to explain that he looks for patterns. “When you see the problem so many times that you make the product to solve the problem.” That is what he believes Tom has done. Frankly it’s what he believes the companies that he invests in for Camden are doing. While the investment criteria and metrics are different, for Jason there are common threads, common DNA if you will, between companies such as Solution Design Group, and those that meet Camden Partner’s investment criteria. Perhaps this isn’t such a busman’s holiday for Jason after all. But more on that next week as we turn to Jason’s exploration of service companies who successfully become product companies.